[co-author: David Safir]
In Meyer v. Massachusetts Mutual Life Insurance Co., the U.S. District Court for the District of Colorado entered summary judgment for an insurer after video evidence showed that the insured was not entitled to the benefits he was receiving.
The plaintiff in Meyer purchased a long-term care policy that provided a benefit if the insured became “chronically ill.” Under the policy, an insured was “chronically ill” if he had a “severe cognitive impairment,” which required continual supervision by another person or substantial assistance with two or more activities of daily living.
After a field examiner and a psychologist concluded that the plaintiff suffered from severe cognitive impairment and required stand-by assistance with showering, dressing, and continence, the insurer determined that the plaintiff qualified as “chronically ill” and began to pay benefits under the policy.
A year later, the insurer sought to recertify that the plaintiff qualified for benefits and requested he complete a recertification form and submit current medical records. The insurer determined the records failed to establish that the plaintiff required “substantial supervision” or “substantial assistance” with activities of daily living.
The insurer also conducted surveillance of the plaintiff during this time. While under surveillance, the plaintiff was observed and recorded driving, walking, shopping, and bending over without assistance or difficulty. Based on this evidence, a medical doctor also concluded that the plaintiff did not have a severe cognitive impairment and did not require substantial assistance to complete activities of daily living.
Accordingly, the insurer terminated the plaintiff’s benefit payments. The plaintiff filed suit, asserting claims for breach of contract and bad faith.
After viewing the video evidence, the court granted summary judgment in favor of the insurer. The court reasoned that the video clearly showed that the plaintiff did not require continual supervision or assistance with tasks of daily living. As a result, there were no triable issues of fact as to whether the insurer properly terminated the plaintiff’s benefits.
Life Insurer Had No Affirmative Obligation to Withdraw More Than Authorized Payments to Keep Policy From Lapsing
In Fric v. Allstate Life Insurance Co., the Fifth Circuit Court of Appeals affirmed summary judgment in favor of a life insurance company that did not increase an insured’s automatic payments to cover an increase in premiums.
The plaintiff was the primary beneficiary of a universal life insurance policy insuring the life of her husband. As the insured aged, the premium required to keep the insurance policy in force increased.
In 2017, the insured signed an autopay agreement, which authorized the insurer to automatically withdraw the amount necessary to cover the premium at that time. The autopay agreement also provided that the insurer could make changes to the payment amount upon “written, verbal, or electronic request(s)” by the insured.
By 2019, the amount authorized under the autopay agreement was not sufficient to cover the insured’s increased premium. The insurer notified the insured of this fact and informed him that he had a 60-day grace period to make the necessary payments. After 60 days passed without payment, the insurer informed the insured that the policy had lapsed.
The insured passed away nearly a year later, prompting the plaintiff to file a claim for benefits. After that claim was denied, the plaintiff filed suit, claiming breach of contract, bad faith, fraud, and promissory estoppel.
The crux of the plaintiff’s argument was that the insurer had a duty to increase the amount of the autopayment to cover the cost of the increased premium. The Fifth Circuit, affirming the district court’s decision, disagreed. Under the terms of the autopay agreement, the insurer was only required to withdraw payments to the extent authorized. The court found that the insurer was to withdraw annually only the amount necessary to cover the 2017 premiums; therefore, it had no affirmative obligation to withdraw premiums sufficient to keep the policy in force.
Potential Beneficiary Necessary Party to Interpleader Action
In Gerber Life Insurance Co. v. Harris, the U.S. District Court for the District of Arizona held that it could not proceed with an action seeking payment of death benefits unless all potential beneficiaries were joined.
The underlying dispute concerned the distribution of death benefits for a life insurance policy that was issued to Fallon Harris in Illinois on behalf of her minor son. When applying for the policy, Harris named herself as the policyholder and did not identify a beneficiary. Under the policy’s terms, this made Harris the policy’s sole beneficiary.
Years later, Harris’ son passed away at the age of 12 after sustaining multiple gunshot wounds. Harris, the sole beneficiary under the policy, was charged with the murder.
Because the insurance policy was issued in Illinois, it was subject to Illinois law, including the Illinois “slayer statute,” which prohibits “any person who intentionally and unjustifiably causes the death of another” from receiving any property, benefit, or other interest by reason of the death. A few months after the insured passed, Harris’ mother (and the insured’s grandmother) filed a claim for policy benefits.
The insurer, recognizing that it had no interest in the policy benefits, but being unsure of who was entitled to them, filed an interpleader action. The court agreed there was uncertainty regarding who was entitled to the policy benefits but questioned whether necessary parties were missing from the action.
In the complaint, the insurer noted that, if Harris was deemed to have intentionally and unjustifiably caused her son’s death, she would be barred from recovering the death benefit by the Illinois slayer statute. In this scenario, the death benefits would be disbursed as though Harris had predeceased the insured, and Harris’ estate would become the beneficiary.
The court disagreed. The court relied on a clause in the policy providing that, if the policyholder died before the insured’s 21st birthday, the beneficiary would become the policyholder, otherwise the legal guardian of the insured would become the owner. The court reasoned that, if the insured had another living parent whose parental rights had not been severed, this clause would make them the beneficiary of the policy and a necessary party to the action. The court held that it could not move forward with the action unless the insurer identified and joined any potential legal guardian. After complying with this request, the court granted the insurer’s request to dismiss them from the case.
Plan Administrator’s Denial of AD&D Claim Not Arbitrary and Capricious
In Goldfarb v. Reliance Standard Life Insurance Co., the Eleventh Circuit Court of Appeals held that a plan administrator’s denial of an accidental death and dismemberment (AD&D) claim under a policy governed by ERISA was not arbitrary and capricious.
This case concerned entitlement to benefits under an AD&D policy insuring the life of a medical doctor. An avid mountain climber, the insured traveled to Pakistan for a mountain climbing expedition. After scouting ahead, the insured’s climbing partner observed that conditions would be too dangerous for them to continue their ascent. Despite these warnings, the insured continued the expedition alone.
The insured disappeared shortly thereafter. Due to conditions on the mountain, and the amount of time the insured was missing, he was presumed dead. Because the insured’s body was never found, however, officials could not conclusively determine the cause of death.
The policy provided a death benefit for loss of life resulting from an injury, but only if the loss was caused “solely by an accident.” The policy did not define the term “accident.”
The policy’s beneficiaries made a claim based on the insured’s death. The insurer denied the claim because it could not determine whether the loss was caused “solely by an accident” as the true cause of the death was unknown. The district court, on cross-motions for summary judgment, granted judgment in favor of the beneficiaries, holding that the denial of benefits was arbitrary and capricious.
The Eleventh Circuit, applying federal common law, reversed. Because the term “accident” was ambiguous in the policy, the Eleventh Circuit, joining six other circuits, applied the definition established in Wickman v. Northwestern National Insurance Co. Under this standard, the court must consider the insured’s subjective expectations of the likelihood of injury from engaging in the conduct that resulted in the loss. Where, as here, the insured’s subjective expectations are unknowable, the court undertakes an objective analysis of whether a reasonable person, with the background and characteristics of the insured, would have viewed injury or death as highly likely to occur as a result of his intentional conduct. If such a person would view injury or death as highly likely to occur, then the death is not considered an accident.
Emphasizing the climbing partner’s warnings and the dangerous conditions on the mountain, the Eleventh Circuit reasoned that even an experienced climber in excellent physical condition would have recognized a high likelihood of injury or death from continuing the climb alone. While the court acknowledged that the facts were susceptible to multiple interpretations, the court reasoned that this ambiguity could not overcome the broad deference given to plan administrators under the arbitrary and capricious standard. Accordingly, the court found that the insurer had a reasonable basis for denying the AD&D policy claim and granted summary judgment in its favor.
